What is insurance? In our modern society, where technology is advanced and complex, there are many dangers, and we are living within these danger zones. The system of insurance economics is a part of risk control. It is an essential management technique for efficiently managing risks. The process consists of:
- Risk confirmation
- Risk analysis
- Risk control method selection
- Methodology of risk control Implementation and evaluation of outcomes
The primary risk control technique mentioned in (3) below is called risk management. This is the prevention and reduction of accidents. The second option is credit risk, which is the flow of cash. Risk financing is divided into (1) savings/self-insurance that does not pass on risk to others, and (2) insurance that passes risk on to others.
The difference between savings and insurance
(1) Savings is the process of depositing money at an institution of finance to be prepared for “sudden circumstances” or “predictable situations.” However, savings will not be enough to cover the risk of major losses (such as personal accident injuries caused by cars).
You can only use up to the amount you have saved. (It takes years to save a lot of money)
However, if you use insurance, you can get a big guarantee (compensation) from the time you pay the insurance premium.
This is a technique where a big company with a significant number of buildings, vehicles, vessels, etc., can reserve prior to the event to handle the risks.
It is different from insurance because it does not distribute the risk across a vast amount of companies.
(3) The insured creditor will suffer damage if the debtor defaults, but the guarantor, who is a third party, will incur the obligations that the debtor should fulfill to the creditor. It is a system to bear the burden.
It is similar to insurance in that a third party takes over the risk of others, but instead of gathering a large number of subscribers and underwriting the guarantee for a fee (premium) as in performance guarantee insurance and mortgage guarantee insurance. In general, the guarantor will take out the insurance free of charge in most cases, and in most cases, the guarantor’s own assets will be applied to the debtor’s default.
Outside of insurance, there exist many strategies to be prepared for risks. Savings, for instance, is one method to accomplish this. But, in the unlikely possibility of damages (economic loss), savings are able to be used to cover the limits of savings. However, insurance is a process that lets many people share costs and compensate one another. Thus, you will receive the amount of money equivalent to an emergency. In these conditions, it is believed “savings is triangular” and “savings are triangular while insurance has a square.”
Below is a list of some schemes that are possible to design for risk and also an insurance comparison. I think this will bring out the distinctive aspects of insurance.
What is the difference between insurance and mutual aid?
Contrary to insurance which is able to cover an unspecified number of people, mutual assistance can be used to cover people who are restricted to a certain field, profession, or a member of a government-owned organization.
What is the difference between insurance and derivatives?
Although non-life insurance doesn’t provide more compensation than the amount of damage in the event of a claim, derivatives pay the amount agreed upon in advance, regardless of the actual damage. Furthermore, non-life insurance must undergo an assessment of damage, but derivatives payout in an extremely short amount of time when conditions are in place.
What is the difference between insurance and investment trusts?
Insurance is a method of paying for damages (economic loss) that is caused by accidents, unexpected events, and other unexpected events. The amount insured is fixed at the date of the contract. Investment trusts are an arrangement designed to earn a profit through managing and investing funds, and the returns fluctuate depending on the performance of investments.
In accordance with the Commercial Code and the license agreement, insurance is classified in the following manner. Furthermore, the term “third sector” or “third sector “third sector” is a term used to describe insurance that isn’t applicable to life insurance, non-life insurance, and life insurance. However, since 2001 the two insurance firms have been able to run.
First field (unique field of life insurance)
Term insurance, whole life insurance, endowment insurance, etc.
Insurance guarantees to pay a set amount of insurance money. It also covers insurance premiums in case of the life or demise of a person.
Second field (unique field of non-life insurance)
Fire insurance, automobile insurance, liability insurance, marine insurance, etc.
Insurance that promises to cover damages that may occur due to certain accidents and pays insurance premiums.
Accident insurance, medical insurance, cancer insurance, long-term care insurance, etc.
Insurance that provides a certain amount of insurance to cover physical injuries, illnesses, and long-term health care, or guarantees to cover the loss and pay an insurance cost.
What to look for when choosing an insurance company
The company must obtain a license for specific types of insurance. You should check to see if the license is available for the type of insurance you require. You can do this on the Bank of your country’s website. Check the table “Subjects for insurance business,” find the company you are looking for, and download it. Online license availability can also be checked.
Insurance tariffs must comply with the requirements established by the Bank of your country. Very low rates can be a sign of a scam. The approximate cost of the policy can be calculated online on the insurance company’s website. Calculate the cost on the websites of different companies, check the numbers. Please note: the more risks provided for in the contract, the higher the insurance price.
Look for well-respected companies that have been in business on the market for a while. Ask your friends to read the reviews on the Internet.
Pay attention to the terms and conditions of your insurance. You should request the complete contract as it may not contain all the information. Pay particular attention to the section where signs are identified as an insured event. Find out what your insurance does not cover. Ask the representative about the process for indemnification in different situations and the timing.